Income-splitting rules change

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QUEBEC — The provincial Liberals campaigned as senior-friendly, and they delivered Wednesday in their first postelection budget.

But at least one unexpected new wrinkle will cost a few near-seniors dearly, as Quebec changed the rules on income-splitting.

The goodies included the seniors’ activity credit, announced during the campaign by Premier Philippe Couillard. As of today, Quebecers 70 and older earning $40,000 or less a year will be eligible for a refundable tax credit of 20 per cent of amounts spent to enrol in physical, artistic, cultural and recreational activities such as aquafitness, tai chi, chess and arts and crafts, lasting at least eight consecutive weeks. The maximum credit is $200 a year and the government expects 300,000 people to derive some benefit.

Quebecers 65 and older who keep working also will see an enhancement in their special tax credit on employment earnings above $5,000 a year. The credit will apply on the next $4,000 of income as of Jan. 1, up from $3,000 now, generating a maximum benefit of $602. The government said 110,000 workers claimed the credit last year and it expects the number to grow by another 25,000-30,000 next year.

Seniors struggling to stay in their homes because of rising property and school taxes also have been promised a loan program by the end of the year, with the details still to be worked out with participating financial institutions. Loans would be repayable only when the property is sold.

“This will help keep people in their homes,” Finance Minister Carlos Leitão said, “but we need the co-operation of financial institutions.”

For Quebecers nearing 65, however, the government took away an attractive benefit that it says was costing about $32 million a year in lost taxes. Those under 65 who receive pension income no longer will be able to split it with a spouse on their provincial tax returns before they turn 65.

Quebec justified the change by saying there was unfairness in the current system, since only those with certain types of pensions could do it. The federal government introduced the program allowing couples to split up to 50 per cent of pension income in 2007, but it did not apply before age 65 to sums paid from Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs) and deferred profit-sharing plans.

Now, 65 is the eligibility age for all sources of retirement income.

The government said a significant percentage of taxpayers who opt for income-splitting before age 65 still hold jobs and earn employment income in addition to their pensions.

An estimated 85,000 Quebec households will be affected by the change in the rules. In the example cited in the budget, the provincial taxes of a household where a 60-year-old Quebecer split $50,000 of pension income with a spouse were $600 less than for someone getting $50,000 from an RRSP.

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